It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach’s famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.

Brazil, Russia, India And China (BRIC)

Åslund, who is also co-author with Andrew Kuchins of “The Russian Balance Sheet”, reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China  in the list of blue-chip economic powerhouses. He writes:

The country’s economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.

I have just returned from Moscow, which is always dreary around this season. But this year, the mood among the capital’s eloquent liberal economists has hit a new low. For the last seven years, Russia has undertaken no significant economic reforms. Instead, the state has been living off oil and gas, like a lucky but undeserving rentier.”

The International Monetary Fund estimatesthat the Russian economic will contract by 6.7 percent this year, while China will grow 8.5 percent and India 5.4 percent. There is less of a case for Brazil, with a contraction of 0.7 percent projected, but it is still doing far better than Russia.

-http://www.topnews.in/files/Brazil-Russia-India

But the BRICs concept is not just about economics. As mentioned, it is a marketing device to urge investors to focus on the big emerging players. From an investment standpoint, it could be argued that Russia is leading the BRICs. Its stock market is up 128 percent this year versus around 80 percent for the other three.

The world’s four biggest emerging economies are grabbing growing volumes of global capital flows, with firms and fund managers increasingly viewing Brazil, Russia, India and China (BRIC) consumer demand as a high-return, relatively safe investment bet.

THE BRIC IS HERE TO STAY

Well, while it is relatively easy to focus on the % change of GDP we also might want to look into the per capita numbers: Russia’s per capita GDP is c$9800, while India’s is c$1000, China’s is c$3500 and only Brazil shows a similar level of c$6800. Relatively higher GDP levels in Russia and Brazil are not a coincidence, both countries are actively supplying the world and other BRIC members with raw materials and food and all these goods are both important and valuable. At least Brazil and Russia do not deserve to be blamed for this.One of the purposes to introduce the BRIC term was to distinguish a group of emerging countries which have a considerable potential to drive the world economy relying on a political end economical system based on global capitalism. Russia with its fast emerging market economy and liberal tax system is one of the leaders in BRIC actually.

BRIC, with 40% of the world’s population, account for about 20% of its gross domestic product, a share Goldman Sachs says will rise to equal that of the G7 industrialised countries as early as 2032.

To remind, the corporate profit tax in Russia is 20%, the personal income tax is flat 13% rate and the VAT is 18%. Yes, Russia’s economy has sharply contracted in 2009. The three key factors hitting Russia simultaneously were the plummeting prices for resources, the unprecedented capital flight and an economy overheated by inflation, previous inflows of capital and short term leverage. Despite all the blows the Russian government is getting even more committed to the market reforms, modernisation and deregulation. Just compare the political system of Russia and China and the way the economy and financial system are regulated in China and you will realize that Russia is well ahead in imposing the liberal economic rules.Inflation has been zero in Russia since mid August and is on target to be 9% this year. The analysts at Troika Dialog (leading Russian investment bank) expect it to fall to 6.5% in 2010. For the first time since the fall of the Soviet Union, they expect single digit Russian inflation for a sustained period in 2010. This would imply greater profits and higher valuation multiples for stocks, strong GDP growth of at least 5%, and better conditions for the formation of long term domestic capital. As you saw in Brazil and Turkey, this is likely to drive outperformance.

In economics, BRIC (typically rendered as “the BRICs” or “the BRICcountries”) is an acronym that refers to the fast-growing developing economies of Brazil, Russia, India, and China. The acronym was first coined and prominently used by Goldman Sachs in 2001.^[1][2] According to a paper published in 2005, Mexico and South Korea are the only other countries comparable to the BRICs, but their economies were excluded initially because they were considered already more developed^[3]. Goldman Sachs argued that, since they are developing rapidly, by 2050 the combined economies of the BRICs could eclipse the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world’s land area and more than 40% of the world’s population.

The GPD per capita used above to measure the richness of China or India compare to Brazil and Russia was not necessarily accurate nor appropriate. China and India’s population is measured by billion while Brazil and Russia’s million. Let’s use China as an example. China has 1.3 billion of population. When we equalize the measuring unit to million, it becomes 1,300 million. Russia has only 140 millions of population. You can see China has 9.28 times of people more than Russia. Of course, the GDP per capita for China is much lower than Russia and Brazil, simply because the R & B have much less population. However, not to forget that the middle to high income (comparable to those developed countries) population of China could simply outnumber the total population of Russia or Brazil. Just simply see the reality by visiting Louis Vuitton’s website. They have already put China on their front page for selection while the rest of the BRI countries are absent from the list.

Links for Files On BRIC

BRICs and Beyond Introduction [PDF, 106 KB]

Section One: The BRICs
Chapter 1: India’s Rising Growth Potential [PDF, 459 KB]
Chapter 2: Russia: A Smooth Political Transition [PDF, 419 KB]
Chapter 3: Will China Grow Old Before Getting Rich? [PDF, 348 KB]
Chapter 4: China’s Investment Strength Is Sustainable [PDF, 393 KB]
Chapter 5: The ‘B’ in BRICs: Unlocking Brazil’s Growth Potential [PDF, 321 KB]
Chapter 6: You Reap What You Sow: Our 2006 Growth Environment Scores [PDF, 383 KB]
Chapter 7: Why the BRICs Dream Won’t Be Green [PDF, 286 KB]
Chapter 8: Why the BRICs Dream Should Be Green [PDF, 288 KB]
Chapter 9: Building the BRICs: Infrastructure Opportunities [PDF, 270 KB]
Chapter 10: Women Hold Up Half the Sky [PDF, 315 KB]

Section Two: Beyond the BRICs
Chapter 11: The N-11: More Than an Acronym [PDF, 832 KB]
Chapter 12: Current Answers (and Questions) About BRICs and the N-11 [PDF, 270 KB]
Chapter 13: Beyond the BRICS: A Look at the ‘Next 11′ [PDF, 316 KB]
Chapter 14: The GCC Dream: Between the BRICs and the Developed World [PDF, 367 KB]

Section Three: The New Global Markets
Chapter 15: Bonding the BRICs: The Ascent of China’s Debt Capital Market [PDF, 407 KB]
Chapter 16: Bonding the BRICs: A Big Chance for India’s Debt Capital Market [PDF, 397 KB]
Chapter 17: Is Wall Street Doomed? [PDF, 272 KB]
Chapter 18: Sovereign Wealth Funds Highlight the Changing World [PDF, 271 KB]
Chapter 19: Globalisation and Disinflation: Can Anyone Else ‘Do A China’? [PDF, 303 KB]
Chapter 20: BRICs and Global Commodities Markets [PDF, 212 KB]
Chapter 21: Food, Glorious Food: Agricultural Commodities [PDF, 285 KB]

“What investors in BRIC are saying is: we believe in GEM (global emerging markets) but to a great extent, what’s happening in GEM is in these four countries,” said Alex Tarver, who helps manage $1.9 billion in BRIC stocks at HSBC. “It is a microcosm and one that’s large enough to drive regional growth.”